Ed DeMarco, acting director for the Federal Housing Finance Agency, sees the opportunity to rebuild a more resilient mortgage market, but challenges in the form of political and policy changes are creating uncertainty across the board, he told a crowd at the Mortgage Bankers Association 100th Annual Convention & Expo in Washington D.C.
Additionally, the mortgage industry has the chance to rebuild the secondary mortgage market, but political and policy challenges are piled high on that front as well.
"While there is progress on the legislative front, the timing of broader housing finance reform remains uncertain," DeMarco said.
Mortgage giants Fannie Mae and Freddie Mac will inevitably cease to operate in their current form. As a result, FHFA will soon establish multi-year targets for both enterprises to further achieve the conservator’s strategic goals outlined earlier this year, the FHFA leader added.
With an uncertain future and a general desire for private capital to come back into the market, FHFA has created three tools to accomplish this objective, including risk-sharing transactions to reduce the taxpayers’ long-term risk exposure, DeMarco pointed out.
Going forward, DeMarco expects to see work done on other types of transactions such as senior/subordinated structures for certain portions of the enterprise’s mortgage guarantees.
Additionally, the FHFA will increase guarantee fees to bring the pricing for credit risk to what would be required by private sector providers, which DeMarco announced at a conference last week.
Furthermore, one of the more the direct ways to increase private sector participation and reduce exposures to taxpayers is through a reduction in conforming loan limits, DeMarco pointed out.
The FHFA will announce the 2014 conforming loan limits in late November, at which time further information will be provided on potential reductions in the size of loans the enterprises will guarantee going forward.
The FHFA is also focused on building a future infrastructure to support the single-family mortgage market.
The conservator announced earlier this year the common securitization platform, which focuses on various efforts, including issuing securities and paying investors.
Next year, a key objective for the FHFA will be to formalize a means for MBA members and other market participants to partake in the development process of the common securitization platform.
DeMarco also pointed out that change is needed in dealing with putback requests, which end up creating more risk for originators who want to sell off mortgages.
One way to achieve this is through the creation of streamlined representation and warranties and oversight in this part of the process. Reps and warranties and appropriate oversight of all representations made have long served as risk-control mechanisms for the government-sponsored enterprises.
Going forward, DeMarco said the FHFA wants to ensure all rep and warrants claims made on pre-conservatorship loans need to be issued by the end of this year.
Additionally, the timeframe for which reps and warrants remain active – expect for limited issues such as fraud – is now limited to three years for performing loans.
"As a nation we should look at this as an opportunity to build a new housing finance system not for the next few years, but a restructuring that could last for decades," DeMarco concluded.